As an agent, I get all sorts of questions, but one of the most common questions is “How much commission do real estate agents make?”
While many scoff at discussing how much they make, I think it’s an essential question because it can be a factor in whether or not you decide to hire someone to help with your home sale or purchase.
How do real estate agents get paid?
In general, most real estate agents earn a living through commission. When they sell a house, they get to pay their own mortgage. If it’s a rough month and they don’t sell a home, their own mortgage doesn’t get paid.
There’s no hourly rate, salary, or tips. Only commission. Simple, right?
Here’s how it works.
When a homeowner (the seller) wants to sell their home, they reach out to an agent. The homeowner and agent will negotiate the commission to around 5-7% of the house sells for. Once they agree, the agent now represents the homeowner’s best interest. They then list the home on the MLS and aggressively market it through staging, beautiful photos, listing on various websites, open houses, etc.
Lots go into selling a house. This is why the agent gets a commission.
That 5-7% isn’t just for the listing agent. However, they have to split it with the buying agent. This split is typically 50% of the commission.
Why does the buyer’s agent get a piece of the commission? Well, for the buyer, they’re scouring the MLS for homes that meet their client’s criteria, showing them various houses, and putting in several offers only to land a deal finally. Then they walk through and assist the buyer through the contract period and closing.
So when the home sells, the buyer’s agent and the listing agent both get a cut of the commission as outlined in the contract. Again, this is usually 3% each.
Who pays the commission on a home sale?
Although everything is negotiable, it’s almost always the seller that pays the commission of both agents.
Sure, even in a seller’s market, the buyer may end up paying all closing costs, but even then, the seller pays the commission.
Don’t be fooled, however. Although buyers may have a sigh of relief that they don’t have to pay the fees, sellers typically bake the costs into the home price. So, in a way, you can think of it as the buyer paying the commission.
Determining the commission rate.
Okay, at this point, you can see why there are commissions and who generally pays for them. But is there any wiggle room with these rates?
Of course, but there’s no guarantee.
Most real estate teams have set rates that they charge for selling a home. They might charge as little as 5% to appeal to sellers trying to save a little money, or they might be as high as 7% because they know their services are worth it. However, most of the time, you’ll find they’re around 6%.
These are not fixed rates, though. This commission rate is just the advertised price of doing business, and most realtors expect they may have to do some negotiating.
Negotiating commission rates.
Keep in mind, as a seller you can negotiate this rate. It never hurts to ask.
If the agent/broker is looking to charge 7%, go ahead and ask for 6%. But note, they will have to pay the buyer agent commission out of that as well. So there is only so much you can negotiate down.
There is even negotiating between the listing agent and buyer agent. A listing agent may have arranged a 6% commission with the seller; however, on the MLS they listed, the buyer’s agent will receive 2%. That means the listing agent will receive 4%! During the offer, the buyer’s agent can negotiate their rate as well.
So, exactly how much commission are real estate agents making here?
Well, let’s use an example.
Let’s say a home listed for $300,000. After aggressive marketing, the seller receives multiple offers, and they go under contract for $310,000. The commission on the sale of the home is set at 6%, which is $18,600. And, as stated in the agreement, the listing agent will pay the buyer agent 3%, so each agent receives $9,300.
How much commission will you pay on your home? Here’s a calculator that will show you exactly how much you’ll end up paying.
It’s also worth noting that some of that goes towards the overhead associated with running a real estates business, such as marketing, lead generation, office fees, MLS fees, licensing requirements, and other brokerage fees.
So why hire an agent?
There are so many FSBOs that regret their decision after the deal. Whether it is the headaches of selling the home on their own or not bringing in as high of an offer as they wanted, they feel they should’ve gone with an agent.
As a buyer or seller, you can anticipate your realtor helping you avoid common mistakes, leverage their expertise, and advocate on your behalf.
Hiring an agent can help you avoid common pitfalls.
Having an agent by your side helps guide you through the selling or buying process. They help with negotiation, show you houses up for sale, take pictures of your home, and appear at closing to ensure everything goes smoothly.
You might think an agent takes a percentage of your commission for bringing in a buyer or seller. Still, they have many responsibilities and are highly knowledgeable in the industry. After all, this is what they do every day.
Agents are experts in the field, so they know how to get the best deals for you.
Whether buying or selling, having an experienced agent in negotiating real estate deals will always benefit you.
If you’re a buyer, your agent can pull comparable homes from the MLS to make your offer realistic. The seller might be asking too much for the property, or maybe it’s a great deal – your agent will make sure you’re making the right choice.
If you’re a seller, your agent can help you market your home at the right price to generate multiple offers. Then, as the bids arrive, help you make sense of the various terms.
You’ll have someone on your side who knows what they’re doing.
There are always at least two parties to every real estate transaction, and the chances are that the other party has a real estate agent on their side. Their agent works on their behalf, ensuring that their bases are covered and that their client is getting the best deal possible.
Wouldn’t it make sense if you had someone on your side? Someone that is fighting for the best deals for you? Someone that can go head to head with the other agent, so you don’t get a fast one pulled on you?
That’s why hiring an agent is in your best interest. They’re on your side. They’re your advocate.
Did I answer the question of how much commission real estate agents make? I hope so. There’s so much that goes into buying and selling homes. It’s an expensive endeavor.
If you’re looking for someone to sell your home, I’m here for you. Give me a call, text, or email any time, and I would love to discuss some options with you.
